Trusts are estate planning solutions that a lawyer can create to protect your assets. Like wills, trusts outline instructions on how assets will be managed if you pass away or become incapacitated. However, these documents are much more complex and provide another party—a trustee—with the legal authority to hold and control assets to serve beneficiaries as you wish. To better understand the function of this relationship, here’s a closer look at irrevocable trusts and how they compare to a revocable trust.
How Do Irrevocable Trusts Work?
When you, the grantor, have a lawyer create an irrevocable trust, you transfer the ownership of selected assets to a third party, or trustee, who will control them on behalf of your beneficiaries. While a revocable trust can be changed throughout your lifetime, an irrevocable one cannot be modified after you create it. Changes can only be made with the permission of the beneficiary, the individual designated to benefit from the controlled asset.
What Are Some Reasons to Create an Irrevocable Trust?
In general, trusts are sometimes preferable to wills because they allow property to pass onto heirs without the need for probate, a legal process in which a court reviews assets and debts to determine how they are rightfully managed. Instead, assets are transferred immediately upon death outside of the public record.
However, by removing the grantor’s ownership of selected assets, irrevocable trusts carry additional financial benefits beyond what a revocable trust can offer.
Most notably, these solutions protect assets from estate tax liability. Under 2021 IRS regulations, assets totaling over $11.7 million in value will be taxed when ownership is transferred from the grantor to the beneficiary. But if an asset is listed in an irrevocable trust, the grantor no longer owns it and won't be liable for the related estate taxes.
Assets held in an irrevocable trust are also protected from creditors. If a creditor sues to claim assets to cover debts, those in the trust won’t be eligible, as they are no longer part of your estate.
Removing ownership of assets also lowers the total value of your estate. As a result, establishing an irrevocable trust can make you eligible for programs that have strict income requirements, such as Medicaid.
If you're interested in establishing an irrevocable trust, consult the attorneys at The Finkelstein Law Firm in Goshen, NY. They'll introduce you to the best options for the needs of your estate, including trusts, wills, and powers of attorney. These lawyers will establish a plan that accurately reflects your wishes and serves your best interests. Learn more about their practice areas online, or call (845) 294-9003 to schedule a consultation.
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